Does Sustainability Reporting Improve Financial Performance? Evidence From an Emerging Market Context
DOI:
https://doi.org/10.51137/wrp.ijarbm.692Keywords:
Sustainability Reporting, Financial Performance, Sustainable Development, Legitimacy TheoryAbstract
The study investigated whether sustainability reporting improves financial performance among non-financial firms listed on the Johannesburg Stock Exchange (JSE). Grounded in stakeholder theory and legitimacy theory, the study explores the relationship between environmental, social, and governance (ESG) disclosure and three accounting-based performance indicators: return on assets (ROA), return on equity (ROE), and return on invested capital (ROIC). A quantitative research design was adopted using a purposive sample of 64 JSE-listed non-financial firms with consistent sustainability and financial reporting data over the period 2018–2023. Multiple regression analysis was used to assess the impact of ESG disclosure while controlling for firm size and leverage. The findings reveal mixed but statistically significant results. ESG disclosure shows a negative and statistically significant relationship with ROA, suggesting that sustainability investments may impose short-term operational and compliance costs that reduce asset-based profitability. The negative mean ROE observed in the sample (-21.22%) reflects sector-specific pressures in capital-intensive industries such as mining and industrial manufacturing, where equity values may be temporarily distorted by large debt obligations and asset write-downs. However, ESG disclosure demonstrates a positive and highly significant relationship with both ROE and ROIC, indicating that enhanced sustainability transparency contributes to improved shareholder returns and greater capital efficiency. The positive effect is most pronounced in the ROIC model, implying that ESG integration plays a critical role in long-term value creation and effective resource allocation. The results suggest that sustainability reporting in the South African emerging market context is not merely a compliance mechanism but a strategic driver of financial resilience. While short-term profitability may be affected, ESG disclosure enhances long-term shareholder value and capital productivity. The study provides important implications for corporate managers, investors, and policymakers seeking to align sustainability practices with financial performance and sustainable development goals.
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Copyright (c) 2026 Makhathini, Kansilembo Aliamutu (Author)
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